US STOCKS-Wall St slips on economic, Europe worries

* Banking stocks head for bear territory
* German Chancellor Merkel proposes greater fiscal union
* Facebook hits new intraday low
* Indexes: Dow off 0.3 pct, S&P down 0.5 pct, Nasdaq up 0.4
pct

By Chuck Mikolajczak
NEW YORK, June 4 (Reuters) - U.S. stocks fell modestly on
Monday as investors reacted to the latest signs of economic
slowdown and looked ahead to events this week that could help
ease Europe's debt crisis
The decline extended Friday's steep drop that wiped out the
Dow industrials' gain for the year, although additional declines
may lack intensity after indexes fell below key technical
support levels.
Signs of economic weakness around the globe and Europe's
intensifying debt crisis are rattled investors, who have been
piling out of riskier investments like commodities and equities
for the perceived safety of higher-rated government bonds.
The S&P 500 dropped 2.5 percent on Friday, its biggest drop
since November 9, with economically sensitive sectors such as
banks and energy among the hardest hit, reflecting investor
sentiment on the stability of the global economy.
The declines on Friday pushed the S&P 500 below its 200-day
moving average, seen as a key support level. The benchmark index
is on track for its fourth straight session of declines.
U.S. banking stocks are heading into a bear market as
Europe's debt crisis pressures the sector. The KBW Bank index
, which measures the performance of 24 U.S. banks, is down
more than 17 percent from its intraday high in March. The index
was down 2.1 percent by noon (1600 GMT).
Morgan Stanley has come under pressure as bond
markets treat the bank as a junk-rated company, and the higher
borrowing costs could already be putting it at a disadvantage
even before an expected ratings downgrade. The bank's stock is
off 41.4 percent since late March, and was down 3.5 percent to
$12.29.
"Things are stabilizing in and around here - they will
stabilize and certainly not decrease with the same velocity that
we've seen recently," said Rick Bensignor, chief market
strategist at Merlin Securities in New York.
"It doesn't mean we are done going down but in and around
here you can kind of consolidate somewhat."
Shares of social networking company Facebook Inc continued
to struggle, hitting a new low of $26.57 since its debut a bit
more than two weeks ago. The stock was lately down 68 cents to
$27.03, down 2.4 percent.
The Dow Jones industrial average dropped 38.07
points, or 0.31 percent, to 12,080.50. The Standard & Poor's 500
Index dropped 6.24 points, or 0.49 percent, to 1,271.80.
The Nasdaq Composite Index dropped 11.07 points, or 0.40
percent, to 2,736.41.
In a potential boost for markets looking for measures to end
the debt crisis which has been at the root of investor angst,
German Chancellor Angela Merkel is pressing for much more
ambitious measures, including a central authority to manage
euro-area finances and major new powers for the European
Commission, European Parliament and European Court of Justice.

Economic data showed orders for manufactured goods dropped
0.6 percent in April, its third decline in four months and below
expectations calling for a 0.2 percent rise.
An experimental Bristol-Myers Squibb drug helped
shrink tumors in patients with advanced melanoma, kidney and
lung cancers in a preliminary trial, raising hopes for yet
another drug that can wake up the immune system and train it to
attack cancer cells. The stock rose 0.7 percent to $33.56.

Medtox Scientific Inc O> surged 35.5 percent to $26.70
after Laboratory Corp of America Holdings said it will
acquire its smaller rival for $27 per share in cash.